The Policy Red Line Behind the $25 Billion RWA Market: Where Exactly Does Document No. 42's "Domestic Prohibition" Draw the Line?

On March 13, 2026, Xinhua News Agency authorized the full release of the “Outline of the 15th Five-Year Plan for National Economic and Social Development of the People’s Republic of China.” This blueprint for China’s development over the next five years explicitly states in the fourth section, “Deepening the Construction of Digital China”: Implementing the national blockchain network construction project, strengthening core industries of the digital economy, developing industries such as blockchain, and building internationally competitive digital industry clusters.

What is even more noteworthy is that the outline for the first time includes “actively participating in international governance in fields such as artificial intelligence, digital currency, and cross-border data flow” in top-level design, clearly proposing to reach more consensus on data security, privacy protection, and cross-border law enforcement cooperation, and to strengthen international judicial coordination and rule recognition.

This is China’s first systematic deployment of blockchain, digital currency, and cross-border data flow within a unified national framework. Some observers interpret this as a “national blueprint for digital civilization infrastructure”—blockchain as the “trusted digital Great Wall,” digital currency as the “digital blood system,” and cross-border data flow as the “neural network” connecting the global digital economy.

Just over a month before this plan was released, on February 6, the People’s Bank of China and eight other departments jointly issued the “Notice on Further Preventing and Disposing of Risks Related to Virtual Currencies” (Yinfa [2026] No. 42), and on the same day, the China Securities Regulatory Commission (CSRC) issued the “Guidelines for the Regulation of Asset-Backed Securities Issued Overseas Based on Domestic Assets.” Both documents were issued simultaneously and are regarded by industry insiders as “the most precise and comprehensive legal normative documents on virtual currency-related activities to date.”

On one side is the top-level guidance of the “14th Five-Year Plan,” and on the other side are the detailed rules of Document No. 42— the former points the way for digital China’s construction, while the latter draws the red line for RWA (Real-World Asset) business. These seemingly independent main lines actually point to the same core question: in the face of digital civilization, as productivity represented by AI releases exponentially, how can the production relations, exemplified by blockchain and digital RMB, ensure that value is fairly rightsized and compliant in circulation?

The answer provided by Document No. 42 is eight characters: “Strictly prohibited domestically, record abroad.” This regulatory framework creates a compliant pathway for enterprises’ RWA going overseas. But how exactly does this pathway work? What are the thresholds? Where are the red lines? Based on policy texts and interpretations from authoritative law firms, this article will dissect the truth behind this dual-track system.

1. From “One-Size-Fits-All” to “Divide and Conquer”

To understand Document No. 42, one must first trace the evolution of China’s virtual currency regulation.

In 2017, the “94 Notice” halted ICO fundraising, and in 2021, the “924 Notice” classified all virtual currency-related activities as illegal financial activities. At that time, the regulatory logic was “one-size-fits-all”—Bitcoin, Ethereum, and various tokens were all viewed as homogeneous risk sources. The authorities adopted the lowest-cost, quickest-effect strategy: outright bans.

However, in 2026, the issuance of Document No. 42 marked a fundamental change.

First, the issuing authority was elevated. The document was jointly issued by the People’s Bank of China, the National Development and Reform Commission, and six other departments, with agreement from the Cyberspace Administration of China, the Supreme Court, and the Supreme People’s Procuratorate, and approved by the State Council. Its level and legal authority are significantly higher than previous documents.

Second, the scope of regulation expanded. For the first time, “tokenization of real-world assets (RWA)” and “stablecoins” were included within the core regulatory scope, with clear definitions: RWA refers to “activities that use cryptographic technology and distributed ledger or similar technology to convert ownership rights, income rights, etc., of assets into tokens (coins) or other rights and bonds with token (coin) characteristics, and issue and trade them.”

More importantly, the regulatory logic was upgraded. According to research by China Merchants Securities International, the core change in Document No. 42 is “separating compliant RWA activities from virtual currency-related activities and integrating them into the formal financial regulatory system.” This means regulators are beginning to distinguish two entirely different categories: one centered on speculative trading of virtual currencies, and the other supported by real assets—RWA.

Jintiancheng Law Firm lawyers Zhao Xiao and Guo Lin believe this change reflects forward-looking regulatory considerations: “If China misses out on the global RWA wave, it could lead to the loss of pricing power for high-quality domestic assets. Therefore, under the premise of maintaining effective domestic financial firewalls, limited access to the global digital asset market through the CSRC’s record-keeping mechanism is a more prudent strategic choice.”

This is the underlying logic of the “dual-track system”—domestic and overseas, divide and conquer.

2. Domestic Track: The Firewall of “Blocking” and the Narrowest of Gates

The first article of Document No. 42 clearly delineates the red line for domestic RWA activities.

It states: “Engaging in activities such as tokenization of real-world assets within the territory, providing related intermediary and information technology services, suspected of illegal issuance of tokens or securities, unauthorized public issuance of securities, illegal operation of securities and futures businesses, illegal fundraising, and other illegal financial activities, shall be prohibited.”

This means that any issuance, trading, or intermediary services related to RWA within China are illegal. Pure technology companies or Web3 startups building RWA platforms, issuing tokens, or even providing technical support domestically may violate this red line.

Additionally, the document imposes unprecedented strict regulations on stablecoins: “Without the approval of relevant authorities, no domestic or foreign entities or individuals shall issue stablecoins pegged to RMB outside China.” Wang Wei, partner at Tianyuan Law Firm, interprets this as “a direct challenge to monetary sovereignty.” The issuance of RMB stablecoins is now under state control.

However, the document does not completely shut the door. It leaves a crucial “exception” in the first article: “Activities conducted with the approval of the competent authorities and relying on specific financial infrastructure are exempt.”

What constitutes “specific financial infrastructure”? Lawyer Zhu Weili from JunHe Law Firm explains that this may refer to four types of entities: national-level blockchain infrastructure and nodes (such as central bank-led blockchain systems), licensed financial exchanges and their innovation boards, official data exchanges, and other pilot platforms approved by the State Council or financial regulators.

Li Sian, lawyer at DeHeng Law Offices, also notes that the threshold for this exception is very high—“specific financial infrastructure” must be licensed or officially piloted, making it nearly impossible for purely technical companies or startups to qualify independently.

This means that while there is some space for RWA within China, it is limited to top-down experiments led by licensed institutions and national infrastructure. Ordinary enterprises currently have little chance to conduct RWA activities domestically.

3. Overseas Track: How to Make the “Loose” Compliance Path Work

If Document No. 42 is about “blocking,” then the “Guidelines for Regulation” issued simultaneously by the CSRC are about “loosening.”

The guidelines establish a record-based regulatory framework for “domestic assets issuing asset-backed securities tokens overseas.” JunHe Law Firm describes this as “a historic step providing a legal pathway for domestic assets to raise funds via overseas RWA.”

Who can access this pathway?

The guidelines specify that the record-keeping entity must be a “domestic entity with actual control over the underlying assets.” This means:

First, the applicant must be a domestic entity, not a shell company abroad. Second, it must have actual control over the underlying assets. Third, the assets must generate “stable and predictable cash flows.”

Zhao Jin, from China Merchants Securities International, summarizes that overseas RWA can be divided into four types: foreign debt RWA (regulated by the NDRC), equity and asset securitization RWA (regulated by the CSRC), and other forms of RWA (jointly regulated by the CSRC and relevant departments). The guidelines primarily target asset securitization RWA, indicating an initial pilot.

The approval process involves three steps:

First: Pre-approval. Submit a record report, comprehensive overseas issuance documents, underlying asset information, and token issuance plans to the CSRC. The CSRC has issued “Guideline No. 1,” detailing the required documentation and formats.

Second: Due diligence. Authorities will scrutinize the underlying assets to ensure they are not on the negative list. The guidelines specify six negative lists, including prohibited financing fields, threats to national security, criminal records of relevant entities, and significant ownership disputes. Notably, the sixth item states: “Underlying assets that fall under the prohibited circumstances in the negative list for domestic asset securitization.” This aligns the quality standards of underlying assets with traditional ABS—assets related to local government debt, vacant real estate under construction, or rights that do not directly generate cash flows are prohibited.

Third: Ongoing reporting. After issuance, any major risks or significant changes in underlying assets must be reported promptly. The domestic record-keeping entity, its controlling shareholders, actual controllers, directors, supervisors, and senior managers are responsible for the authenticity of the submitted materials.

Cross-departmental regulatory coordination

The CSRC’s record-keeping is only the first step. Zhonglun Law Firm notes that the enterprise must also complete approval procedures with other regulatory bodies for cross-border investment, foreign exchange management, cybersecurity, and data security. For foreign debt registration, approval from the NDRC is required; for data export, security review by the Cyberspace Administration; and for capital repatriation, compliance with foreign exchange regulations.

This “parallel cross-departmental regulation” mechanism embodies the principle of “same business, same risk, same rules.” RWA is not regarded as a completely new financial sector but integrated into existing financial regulatory frameworks—foreign debt is managed by foreign debt regulations, securities by securities laws, and cross-border capital flows by foreign exchange controls.

5. When Regulation Meets Technology: Imagining AI’s Role in the Compliance Framework

The issuance of Document No. 42 and the CSRC guidelines has established compliant pathways for enterprises to go overseas with RWA, but they also impose unprecedented detailed requirements: due diligence must reach the underlying assets, cash flow forecasts must be “stable and predictable,” and cross-border data flows face security reviews by the Cyberspace Administration. For companies with hundreds or thousands of dispersed assets, this entails massive due diligence, continuous compliance monitoring, and complex documentation.

In this context, what role can AI play?

First, in compliance applications. OpenAI and Paradigm’s collaboration on EVMbench has entered the on-chain asset security field. AI can assist in transaction behavior analysis needed for transparent regulation, model and predict yields of assets like charging stations and photovoltaic plants, and play a significant role in anti-money laundering and transaction monitoring.

Second, in enabling overseas expansion. Preparing record-keeping materials involves extensive asset due diligence and legal documentation, which AI can help automate. For data export compliance, AI can assist in designing architectures that “desensitize sensitive domestic data and only transmit revenue data abroad.”

However, the boundaries of compliance must be strictly maintained. AI-driven on-chain transaction functions and automated smart contract execution must operate within the “overseas regulatory framework + domestic record-keeping approval.” All activities involving domestic assets remain subject to the red lines of Document No. 42.

6. Conclusions and Insights: What Comes After the Narrow Gate?

One hundred days after the release of Document No. 42, we can now see its full picture clearly.

It is not a “ban” on RWA but a “manual”—a guide telling the market: what must absolutely not be done, what can be done, and how to do it.

“Strictly prohibited domestically” draws the bottom line for financial security. China’s firm stance against virtual currencies remains unchanged. Any attempt to bypass regulation and raise funds from the public under the guise of “pseudo-RWA” will be firmly eliminated. Wang Wei from Tianyuan Law Firm warns that many practitioners misinterpret “technological neutrality” as “responsibility neutrality,” but in regulatory logic, “technology is not an immunity card—if your product, content, or service leads users into illegal trading ecosystems, technology will be held accountable.”

“Record abroad” opens a narrow door for service entities. For enterprises with high-quality assets, stable cash flows, and alignment with national strategies, the combination of the 42nd document and the CSRC guidelines offers a feasible, compliant path to go overseas—though with high thresholds and costs, it is no longer a “gray area.” Ouyang Xiaohong, chief observer of Caijing Magazine, believes that the most underestimated value of the 42nd document lies not in “broad liberalization” but in “embedding the possibility of controlled pilots into the institutional framework.”

For decision-makers in listed companies, the question now is not “Can RWA be done?” but:

Are my assets outside the “negative list”? Are my cash flows sufficiently stable and predictable? Can I assemble a compliant team that meets record-keeping requirements? Do I have the capability for cross-border data compliance?

If the answer is yes, then beyond the narrow gate may lie a blue ocean.

Mr. Zou, a practitioner involved in RWA projects in Hong Kong, describes the current situation: “Finding assets, buyers, and channels takes time, but the policy window is indeed opening.”

As AI exponentially releases productivity, RWA—serving as a bridge connecting the digital world and real assets—requires compliant “pipelines” for value transfer. The significance of the 42nd document lies in installing a “valve” on this pipeline—preventing a flood of speculative capital while reserving channels for assets that genuinely serve the real economy.

This may be the brilliance of the dual-track system: one track blocks risks, the other connects to the future.

(This article is based on publicly available policy documents, authoritative media reports, and law firm analyses. It does not constitute any investment advice or compliance guarantee. Before engaging in specific activities, please consult professional institutions. Under the “long-arm jurisdiction” principle of the 42nd document, even discussing overseas cases does not imply participation rights for domestic readers. All activities involving domestic assets must strictly adhere to the red line of “strict prohibition domestically.”)